Will embedded insurance become the future of the industry?

Many in the insurance industry see embedded insurance as the logical next step in the industry’s evolution. Proponents argue that with its promise to disrupt insurance distribution, embedded insurance will be a major growth driver. As the market develops, we have seen a number of major consumer brands, from Tesla to IKEA and Uber, begin to embed insurance into their offerings. However, some insurers are understandably sceptical when it comes to embedded insurance as their brand could become invisible behind the customer-facing brand depending on how the embedded insurance offering is presented and sold.

Embedded insurance as an opportunity
Consumers are definitely warming to the idea of increased convenience and simplicity through embedded insurance as the market continues to mature. This is because embedded insurance provides consumers with the opportunity to receive a tailored insurance offering, which fits their product or service purchases, without the need to shop around for insurance deals. Rather, it is all consolidated at the point of sale for that product or service.

Customers are increasingly comfortable with buying insurance from a consumer brand, such as Amazon, Tesla and IKEA. According to research of UK insurance customers, more than four in ten (45 percent) of customers are willing to purchase insurance from a non-insurer brand. Embedded insurance also helps to reach consumers who otherwise might not have insurance, particularly those who are younger. The aforementioned study found that over 70 percent of customers aged between 18 and 34 are more likely to buy insurance from a consumer brand if it is embedded. This presents an opportunity for insurers to capture a whole new audience without needing to heavily invest in marketing and additional customer support.

The issue of legacy technology
Embedded insurance only works when the integration between insurer and third-party systems is seamless and secure. Anything less and there will be costly delays and the potential for hackers to break into misconfigured systems. For insurers, holding on to legacy systems can cause problems in this regard. These include increased maintenance costs of backend systems, time consuming product development and limited capabilities to integrate with new digital ecosystems. Research from Levvel, found that insurers are behind other industries when it comes to modernising their technology, which, in turn, is holding their digitalisation back.

Insurers must focus on advancing their digital transformation agenda, so they are able to integrate with partner brands to be able to supply these new channels with the right product and pricing information in real-time and at the same time make underwriting decisions quickly and more accurately. As such, insurers should aim to become cloud native, which would then allow them to utilise the latest innovations and technology like machine learning and artificial intelligence (AI) to improve customer service, reduce fraud, and improve underwriting accuracy, without needing to maintain their backend systems.

Regulatory concerns
As embedded insurance involves multiple parties, there is confusion as to who can access the private customer data and why, which raises transparency issues and regulatory complications. As well as this, data ownership questions are also raised. This is due to questions around whether the customer-facing organisation should be able to access and analyse personal data shared with the insurer; as well the party that has access to the customer interface, whether it be the insurer or customer brand, would be the one driving this distribution model.

In order to protect customers, each party is responsible for preventing data breaches and the data must be processed and stored in a way that is compliant with the regulations for each country. When beginning this partnership, clear rules must be set out, without any ambiguity. If there are failures it impacts customer confidence, with some customers potentially being unwilling to use an embedded insurance model.

The future of embedded insurance
The embedded insurance market, particularly for general insurance is predicted to be valued at $722 billion in Gross Written Premium by 2030, illustrating significant growth and opportunity in the sector. At the moment, the market is focused on consumer goods, but in the future, this could extend to business processes, such as in logistics and warehousing. Especially at a time where businesses are tightening their budgets, embedded insurance could be a way for organisations to scale their insurance needs, whilst keeping costs low.

So, will embedded insurance become the future of the industry? In short, yes. Embedded insurance provides convenience to customers and allows businesses to keep their costs low. However, changes need to happen in the industry first. Insurers must update their back-end technology systems in order to seamlessly integrate with customer-facing partner brands. Embedded insurance is a win-win-win for insurers, businesses and customers alike.